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Drawing up Strategic Partnership Agreements

Having approached a company, discussed the possibility of establishing a strategic partnership, and agreed in principle to proceed, the next step is to draw up the agreement.

A written agreement is essential to ensure that everything is clear from the start. It will help to prevent arguments arising from misunderstandings and also help both businesses get the most from the partnership.

A good strategic partnership agreement should cover the following:

Aims and Objectives

What are the primary and secondary aims of the strategic alliance, for both businesses? Clearly specify the aims, such as revenue generation, cost-reduction, or to increase your customer base.

Non-Financial Contributions

What will each business contribute to the partnership aside from financial commitment? For example, there is usually some form of cross-promotion, such as widespread prevalence on each others’ websites and visibility on new marketing material.

Financial Commitments

It may be the case that one business is making a financial commitment in return for certain things supplied by the other business. This financial commitment may help to even-up the partnership in instances where one business is gaining more than another. Always try to specify the amount of investment to prevent the business providing finance attempting to cut costs.

Ownership of Intellectual Property

If you’re starting a new venture together intellectual property, such as logos or even inventions may be created. Always specify who owns this in the agreement to prevent costly arguments arising when the partnership comes to an end.

Evaluation Dates

The reason for establishing a strategic alliance in the first place is to benefit both the businesses involved. Therefore specify certain dates on which the partnership will be evaluated. This ensures that if one business isn’t benefiting greatly the issue can be resolved&n...

Strategic Alliances - an Underused Marketing Tactic

Strategic alliances are formal partnerships between businesses which help the businesses achieve a set of goals.

There are many types of strategic alliances , including joint ventures, affiliates and distribution agreements. They are particularly common in industries that are experiencing rapid change, the internet being one example, and are often the quickest way of rapidly expanding a business.

Fortune Magazine called the 1990s “the decade of the strategic alliance” and it has become one of the key tools in rapidly expanding and winning market share.

Benefits of Strategic Alliances

Many startups decide that the best way to rapidly expand their business is to enter into strategic alliances with established companies which serve a different but similar market. The many benefits of strategic alliances are listed below:

Access to distribution channels

Access to technology, expertise or intellectual property

As a means to raise capital

New products for your customers

Lower R&D costs

Economies of scale

Raise brand awareness

For a new business looking to develop brand awareness there are few more cost-effective ways of raising widespread awareness than partnering with an established business within the same industry. There’s also no reason to stop there – you can continue to partner with other non-competing firms and benefit from multiple distribution channels.

When approaching a company to propose a strategic alliance remember that you must have something to offer them in exchange.

Disadvantages of Strategic Alliances

The problem with strategic alliances is that there are a number of problems which must be overcome for them to be a success, including:

Incoherent goals, with one business not benefiting greatly from the agreement

Insufficient trust, with each partner company trying to get the better deal

Conflicts over how the partnership works

Potential to reduce future opportunities through being unable to enter into agreements with your partner’s competitors

Lack of commitment to the partnership

Risk of sharing too much knowledge and the partner company becoming a competitor

The main problem with strategic alliances is being able to develop a partnership which is beneficial to both parties. Often a partnership is beneficial to the smaller business, perhaps due to the wide-scale distribution channels that are gained, but the benefits for the established business aren’t quite so clear.

Even when this problem has been overcome the problem of trust arises. Without a degree of trust partnerships become beset with administrative problems and suspicions.

The best way to overcome this is to be transparent and reassess the alliance at regular intervals to ensure that both parties are gaining from the agreement. I...

Types of Strategic Alliances

Collaborative agreements between businesses can take a number of forms and are becoming increasingly common as businesses aim to get the upper hand over their competitors. The main types of strategic alliances are listed below:

Joint Ventures

A joint venture is an agreement by two or more parties to form a single entity to undertake a certain project. Each of the businesses has an equity stake in the individual business and share revenues, expenses and profits.

"Joint Ventures are agreements between parties or firms for a particular purpose or venture. Their formation may be very informal, such as a handshake and an agreement for two firms to share a booth at a trade show. Other arrangements can be extremely complex, such as the consortium of major U.S. electronics firms to develop new microchips," says Charles P. Lickson in A Legal Guide for Small Business.

Joint ventures between small firms are very rare, primarily because of the required commitment and costs involved.

Outsourcing

The 1980s was the decade where outsourcing really rose to prominence, and this trend continued throughout the 1990s to today, although to a slightly lesser extent.

The early forecasts, such as the one from American Journalist Larry Elder, have been shown to not always be true:

Affiliate marketing has exploded over recent years, with the most successful online retailers using it to great effect. The nature of the internet means that referrals can be accurately tracked right through the order process.

Amazon was the pioneer of affiliate marketing, and now has tens of thousands of websites promoting its products on a performance-based basis.

Technology Licensing

This is a contractual arrangement whereby trade marks, intellectual property and trade secrets are licensed to an external firm. It’s used mainly as a low cost way to enter foreign markets. The main downside of licensing is the loss of control over the technology – as soon as it enters other hands the possibility of exploitation arises.

Product Licensing

This is similar to technology licensing except that the license provided is only to manufacture and sell a certain product. Usually each licensee will be given an exclusive geographic area to which they can sell to. It’s a lower-risk way of expanding the reach of your product compared to building your manufacturing base and distribution reach.

Franchising

Franchising is an excellent way of quickly rolling out a successful concept nationwide. Franchisees pay a set-up fee and agree to ongoing paym...